How to Find Investors for Your Business: A Step-by-Step Guide

How to Find Investors for Your Business: A Step-by-Step Guide

How to Find Investors for Your Business: A Step-by-Step Guide


If you’re a startup founder, coming up with the idea for your business might feel like it was the easy part. Even if it took years of late nights, rounds of revisions, and countless starts and stops, you did it. Maybe you’re doing it right now. 

Either way, your idea has probably always felt like it was within your control. Even if there’s a team of decision-makers involved, you all are still calling the shots. If you want to change something, you do. When something isn’t working, you scrap it. Why? Because you’re in charge.

Finding people to invest in your business can feel the exact opposite. All of a sudden you have what seems like little control over whether or not they like your idea – much less when or if they decide to invest significant amounts of money into your business. Ultimately, it can feel risky – but consider this quote from Susan Wojcicki, CEO of YouTube:

Life doesn’t always present you with the perfect opportunity at the perfect time. Opportunities come when you least expect them, or when you’re not ready for them. Rarely are opportunities presented to you in the perfect way, in a nice little box with a yellow bow on top. Opportunities, the good ones, they’re messy and confusing and hard to recognize. They’re risky. They challenge you.”

That tension between control and risk is real, but it doesn’t have to overwhelm you. When done correctly, finding people to invest in your business can be one of the most exciting parts of your job. This step-by-step guide will help you get started, teach you how to build strong investor relationships, and implement strategies that work. You may not be able to control everything, but that doesn’t mean you can’t control some things.

Why Small Business is Big

There’s some good news for entrepreneurs and startup founders right out of the gate: finding investors and raising capital for a small business can be easier than for larger, more established companies. Here are three reasons why:

  • A Little Money (Goes a Long Way)

While a big company may not even accept investments below six figures, $10,000 might be a gamechanger for the life of your startup.

  • Lower Barrier to Entry

Not every investor can write a million-dollar check. However, finding ten people willing to invest a few thousand dollars apiece is significantly easier.

  • Higher Risk = Higher Reward

Investors are diverse and include those that specifically enjoy higher risk/higher reward partnerships with new startup founders. They do exist. You just have to find them. 

How to Find Investors for Your Business: A Step-by-Step Guide

How to Find Investors for Small Businesses – The Top 5 Ways for a Startup to Get Capital

Okay…that was encouraging, right? We think so. Still, success takes more than a pep talk. You need practical steps. With that in mind, here are the top five ways to find investors and raise the capital your business needs.

Begin By Asking Your Family and Friends

Wait…before you throw your phone or break your mouse, you should know something important: we’re not suggesting you ask to borrow any money here. If that’s what’s causing you to cringe at even the thought of discussing this with your family or friends, think again. 

This is not a loan. This is an opportunity to invest – to make their money back and then some. After all, the people you’re closest to know you better than anyone else. They’ve seen your drive, they know your dedication, and they believe in you. In turn, you believe in yourself and your idea. Asking your friends and family to invest is a way of inviting them to be active participants in your dream and recipients of your success. You can feel good about that.

Apply for a Small Business Administration Loan

Unlike your family members or close friends, the Small Business Administration doesn’t get involved with investing, however, they do provide loans for qualified applicants. One of the most advantageous SBA options for startups is their microloan program. While the average microloan is around $13,000, the program provides loans up to $50,000. 

Before you apply, be aware that loan proceeds cannot be used to purchase real estate or pay existing debts. However, that means you’re free to rebuild, re-open, repair, enhance, or improve your small business. That includes expenses associated with inventory, machinery, furniture, fixtures, equipment, supplies, and working capital. A microloan may not give you everything to get your business off the ground, but it can be part of your financial plan.

Consider Private Investors

With the right group of private investors, it’s possible to raise all of the capital needed to launch and grow your startup. We’ll provide more information below to help you understand what these investors are looking for – allowing you to tailor your offering and maximize interest – but here are some basics to consider:

Before pitching your idea to an investor or venture capital group, know the amount of funding you need, and be prepared to explain what that money will allow you to accomplish. Then, make sure your pitch is polished and practiced. After that, do your research. Are there local VCs you can meet with in person? Do you know of an angel investor you can reach out to? Put the internet – including LinkedIn and other online networking sites – to work for you. 

Contact Businesses or Schools in Your Field of Work

Sometimes finding an investor is as simple as a meeting over coffee. At other times, more steps are involved. Building a solid financial foundation for your business will require some of both. If there are businesses or schools nearby that focus on or specialize in work that overlaps with your product or idea, get to know them. 

Discovering an investor in either group isn’t a guarantee, but both businesses and schools have large networks – groups that are sure you include people interested in what you’re doing. You may also find connections you hadn’t expected, like manufacturers, suppliers, and other small business owners who may help you advertise, stock your products, or recommend you to their customers. 

The natives of Silicon Valley learned long ago that when you share your knowledge with someone else, one plus one usually equals three. You both learn each other’s ideas, and you come up with new ones.” – Vivek Wadhwa

Try Crowdfunding Platforms to Find Investors

There are good reasons crowdfunding platforms have grown in popularity: they tend to produce results. Some caveats exist, of course, but online crowdfunding – like SBA loans and angel investors – can be another exciting piece of the fundraising process. Understanding your audience and what will compel them to act is critical. 

The crowdfunding campaigns that succeed all have a few things in common: 

  • an attainable funding goal 
  • more than one investing level or tier 
  • direct incentivization

Although the individual investments tend to be much smaller (anywhere from $25 to several hundred dollars), more people – especially those who might not consider themselves to be investors – can participate. This can build positive buzz and a sense of excitement that may very well draw the attention of even larger audiences and bigger investors. 

 

Frequently Asked Questions

“What Do Investors Look For?”

The first thing investors look for is an engaging story, which is why your pitch is so important. Your pitch is more than a mission statement, a series of bar graphs, or a prototype. All of those pieces may be included in your company’s story, but in a way that tells a story – one that draws an investor in and compels them to act.

Beyond that, investors look for founders who are bold, but who remain teachable in the areas outside their expertise. Investors want opportunities to make an impact – in other words, to feel like their money is making a difference. They also want to know that their questions – which they may have many of – will be answered thoughtfully and that any insight they might have will be taken into consideration. 

“What Is a Fair Percentage for an Investor?”

The answer to this question varies depending on how much someone is willing to invest. On the low end, an investor gained through a crowdfunding platform may become eligible for a substantial discount once your product hits the market. In the meantime, you may choose to outfit them with free branded products, like stickers, a t-shirt, or access to an exclusive online community. 

Angel investors or VCs aren’t nearly as motivated by swag. Building a working relationship with this type of investor will likely mean trading a percentage of ownership in your company for a significant infusion of capital. That percentage could be relatively small – perhaps 25% – or it could be full ownership, making you an employee. Having a plan, knowing what you’re willing to do, and sticking to your strategy will help you navigate each opportunity.

Finding Investors for Your Business: A Recap

Discovering, meeting with, and successfully onboarding new investors for your startup doesn’t have to feel overwhelming. It can be one of the most rewarding aspects of being an entrepreneur or founder. Family, friends, and private investors can all be part of your funding plan. You may even decide that a small business loan is needed, or you might put the power of crowdfunding to work for your startup. No matter what, you need a plan – one that begins with a great story.

Great stories are what get all of us to lean in a little closer, listen with more interest, and imagine ourselves getting involved. Here’s how we can help you tell your story in ways that matter most.

Putting The Main Stage to Work for You

The Main Stage is built around the things startup founders and business creatives need most: 

  • A platform for designing and sharing beautifully made pitches that draw a crowd
  • A built-in software that makes tailoring emails and managing investor relationships easy
  • And a secure document vault for storing investor-related correspondence

The Main Stage is the future of fundraising and now is your chance to join us. If you’re ready to get started, we’re ready to help. Click here to sign up for a free 14-day trial. 

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Aishlin Harrison is the co-founder of The Main Stage, as well as an artist, musician, and passionate entrepreneur. In addition to these roles, she serves as Creative Advisor for RedCrow™, Inc., a direct investment and marketing platform for healthcare companies. You can connect with her on LinkedIn.

The Top Questions VCs Ask During Pitch Meetings

The Mainstage - The Top Questions VCs Ask During Pitch Meetings

The Mainstage - The Top Questions VCs Ask During Pitch Meetings

Are you someone who thrives on winging it – on showing up to a crucial meeting or an important presentation without much preparation or practice? Probably not. In fact, if you’re reading this, your goal is most likely the opposite. As a founder or entrepreneur, you understand that preparation is an integral part of success. Everyone wants to be polished, and that bar is set pretty high, right? You reach it, of course, through a lot of hard work. Preparation and practice are the “wash, rinse, repeat” of startup success. 

If you’re all in, then keep reading. We’re about to take your prep work to the next level.

How To Have a Competitive Advantage in Your Pitch Meetings

Keep that word in mind, will you? Preparation and practice are all about gaining an advantage. Venture Capitalists sit through a lot of pitches. That’s part of their job. Emily Weiss, CEO and Founder of cosmetics company Glossier, said that “so much of venture capital is pattern recognition.” It’s true. Having a quick way of separating the good from the bad makes their jobs easier. 

Here’s something you should know: good and bad have more to do with preparation than products or ideas. You can have a brilliant idea and still bomb your pitch meeting if you show up unprepared. 

When you’re able to explain your business and can answer each question that is fired your way, it indicates a level of seriousness and commitment – that the process of launching a company and raising equity isn’t a game to you. 

This is the founder you want to embody, and becoming this kind of a leader takes effort. A lot of that work involves knowing what type of questions investors may be asking and having a plan to answer them. This is where we can help. 

The Questions VCs Ask Depend on the Stage You’re In

VCs tend to ask the same questions because they have a system for finding strong investment opportunities – and because they know how to expose holes in your product, plan, or model. Some of those questions will come up early, like during pre-seed funding, and others will emerge in later rounds. The stakes are high, and your job is to be ready. 

Since the majority of startup founders are in or between the pre-seed and seed stages of fundraising, we’ve organized the questions you’re most likely to be asked into those two categories. We’ve also included an effective way to turn the tables and ask some important questions of your own at the end! You’re not going to want to miss that.

Pre-Seed Questions

Pre-seed questions typically focus on as many as seven distinct categories: the team, the market, the competition, financials, legal, market validation, and your competitive advantages.

Remember: Pre-seed investors, whether they are traditional VCs or angel investors, are basically investing in you – in your ability to do the thing you say you’re able to do. The questions in this stage of funding reflect that. 

The Mainstage - The Mainstage - The Top Questions VCs Ask During Pitch Meetings

The Team

  • What expertise or background do you have in this industry?
  • How are responsibilities shared within your team?
  • What history does your team have working together?
  • Are you fully committed to this business, or do you have other commitments?
  • How do you and your team measure success and failure?

The Market & Your Product / Offering 

  • Why is now the right time to bring your idea or product to market?
  • Who is your customer base or target market?
  • What makes you believe that your company has high growth potential?
  • How long will it take to achieve market impact or disruption?
  • What is your TAM (total addressable market), and how will you achieve it?

The Competition

  • Everyone has competition. Who is yours?
  • What does your competition do well that you’ve yet to achieve?
  • What do you understand about the market that the competition does not?
  • Are you more or less expensive than the competition? 
  • How do your features and/or benefits compare to the competition?

Financials

  • How long until your business is profitable?
  • What are your three-year financial projections?
  • How much future debt or equity financing do you think will be necessary?
  • What is your projected burn rate?
  • What are you basing all of these projections on?

Legal

  • What, if anything, is your corporate structure/status?
  • If you incorporated, in which state or country was your company formed?
  • What pieces of intellectual property  – including domain names, URLs, patents (pending or otherwise), trade secrets, trademarks, and copyrights – does your company possess?
  • What due diligence has been performed to ensure that your company’s intellectual property does not infringe on the third-party rights of any other person or entity?
  • Would any employees (current or former) or their previous employers have a potential claim against your company’s intellectual property?

Market Validation

  • How can you demonstrate that demand exists for your product or service?
  • How do you know that customers want or need what you’re selling?
  • Have you built – and subsequently tested – a minimum viable product (MVP) in the market?
  • How did you find research participants, and how were results analyzed?
  • What sort of SEO analysis did you perform to gauge interest or demand?

Competitive Advantages

  • Is anything new or disruptive about your product or service?
  • Why aren’t other companies already doing this, or why might they have chosen not to?
  • How is your idea different from the rest of the industry?
  • Do you have any “unfair” advantages?
  • What do you understand that no one else has figured out yet?

At first glance, this may seem like an overwhelming number of questions, but many of them overlap with each other. Much of the work of preparation and practice is developing clear and concise answers to very specific questions. Focus one or two in each of these categories. Write them down on index cards and have your co-founder, a team member, partner, or friends pull questions at random. Not only will you hone your pitch, but your answers will become polished and predictable.

Seed Questions

Seed questions typically fall into nine categories – many of which focus on price, demand, and ability to scale. They include: your team, business model, the product and technology, market, growth opportunities, traction, intellectual property, existing financial round, and intended use of funds.

Remember: at this stage, seed investors are still interested in you, but now “you” includes a track record that is tangible and quantifiable. None of these questions should surprise you, so do your homework. Know what will be asked of you and prepare a straightforward answer.

Your Team

  • Where is your business headquartered? 
  • Who are the founders, key members, and what are their responsibilities?
  • What about board members?
  • How has any internal conflict been handled up to this point?
  • Have any founders expressed interest in being bought out?

Business Model

  • What is your current cost of acquisition per customer?
  • What are your profit margins – and how will scaling impact those?
  • How has your business model changed since your initial launch?
  • How many paying customers do you have right now?
  • What’s a real customer interaction you’ve had that supports your business model?

The Product and Technology

  • How has your product or service evolved from earlier versions?
  • What key features do you plan to add in the next 6-12 months?
  • Has user behavior surprised you or influenced design decisions?
  • Can you show me how the product works?
  • From prototype to current version, if you could do one thing differently, what would it be?

Market

  • What percentage of the market share can your business realistically own?
  • Who is your best customer and why?
  • Do you have a PR strategy? If so, what is it?
  • Who do you admire in your market or industry?
  • What’s a danger in your market or industry you’d like to avoid?

Growth Opportunities

  • Where will new users/clients/customers come from?
  • What is your user growth rate?
  • What is your current conversion rate?
  • What advertising will you do with additional capital?
  • Is there a way to reduce your per customer acquisition cost?

Traction

  • How many users, and how long do you retain them on average?
  • What is the total number of sales to date?
  • What is your annual growth rate?
  • What feedback – positive and negative – have you received so far?
  • Have you made any changes based on that feedback?

Intellectual Property

  • Have you discovered any legal or product liability issues?
  • Who has (and who continues to) develop your intellectual property?
  • What, if any, new patents do you have pending?
  • Are there any regulatory risks you’re aware of?
  • Have any partners or employees left the company that may claim ownership of your intellectual property?

Existing Financial Round

  • Do you have an exit plan – including M&A or IPO?
  • What is the timeline for this?
  • What is your current valuation (and how is that being determined)?
  • How much capital are you trying to raise now?
  • Are any previous investors participating in this round of fundraising?

Use of Funds

  • How will you allocate these funds between overhead and growth/expansion?
  • What technology will you be able to purchase with this money?
  • How much of this money will be spent on hiring more people?
  • What if you’re not able to raise enough money?
  • What are the risks and how are you mitigating them?

Again, many – if not most – of these questions are the same ones you ask yourself, your partners, or your co-founders regularly. At this stage of your company, questions about traction, growth opportunities, and how to allocate an infusion of capital are commonplace. If they aren’t, they should be. Don’t hesitate to work out your answers within a team. Come to a consensus, write down clear language that answers all parts of the question, and practice. 

Remember: if there’s an elephant in the room, a good investor will find it and call it out. Address it with honesty and transparency before you’re asked. Don’t obfuscate the issue or minimize the potential impact. Own it. This is your business. Ron Conway – a veteran venture capitalist and well-known angel investor – said he’s looking for that willingness to take ownership immediately: “When you’re talking to me in the first minute, I’m thinking – is this person a leader?” Here’s some advice: be that leader. If you’re owning the successes, own the obstacles too. 

Turning the Tables: Top Questions You Should Ask Investors

Although it may be tempting to imagine that any money is good money, working with investors is really about building a relationship. In the same way that you wouldn’t necessarily date each person you’d ever met, you won’t always want to work with every investor you meet. That’s okay. There will be times when your business isn’t the right opportunity for an investor, and other times when the investment being offered isn’t the right opportunity for your business. While you have little, if any, control over an investor’s decision, there are a few questions that will help you make – and feel good about – your choice. Remember these and be ready to ask them.

  • How would other startup founders describe working with you?
  • Beyond money, are there other ways you can add value to our business?
  • What do you look for in an investment besides the return?
  • Can you provide references for three founders you’ve worked with previously?
  • What was your worst investment, and why?

Remember: we’re all just human beings, even when one of us is wearing the investor hat and the other is wearing the founder hat. Which side of the table we’re sitting on is really inconsequential. We’re people, and most of us share similar hopes, dreams, and values. We may go about achieving them differently, but at the end of the day, we want good things for ourselves and the people around us.

How The Main Stage Can Help

That idea – of putting good into the world and finding new ways to make it grow – drives the work we do at The Main Stage. In practical terms, it involves helping founders like you:

  • Develop a clear, compelling, and interactive pitch that engages investors
  • Create a seamless pipeline for maintaining and cultivating investor relationships
  • Store executed agreements, correspondences, and regulatory documents

At The Main Stage, we take the hassle out of fundraising so you can turn your startup dreams into something tangible.

If you’re ready to get started we’re eager to help. Press the home button above to learn more or start your free 14-day trial. The future of fundraising is here – only at The Main Stage. 

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Brian A. Smith is a highly experienced investor, Co-Founder of The Main Stage, and Co-Founder and CEO of RedCrow™ Inc., a direct investment and marketing platform that specializes in cutting-edge healthcare startups. Connect with him on LinkedIn and

How Funding Works for StartUps: A Guide to Funding Rounds

How Funding Works for Start-Ups: A Guide to Funding Rounds

How Funding Works for Start-Ups: A Guide to Funding Rounds

 

If movies – and certainly reality TV – were to be believed, securing funding for your startup would be fairly quick, involve a significant influx of cash all at once, and only require minimal embarrassment. Although the potential for embarrassment is never really off the table (especially early on in the life of your business), the truth about startup funding is that it isn’t nearly so scripted. 

As much fun as stories of overnight success are, funding almost always takes time, and it rarely happens all at once. In fact, it’s because the entire funding process has so many misconceptions – along with its own confusing vernacular – that clarification, explanation, and some behind-the-scenes industry insights are necessary. In this guide, we’ll tackle the terminology, walk you through the key steps, and make sure you have a roadmap for navigating funding success by the time you finish reading. How does startup funding work? It’s time to find out.

A Quick Fundraising Overview

Before we go any further, remember that fundraising is a process, and like any good one, there’s more than one step involved, and a clear plan is required. In order to successfully raise capital, the process begins before you even talk with your first investor. Prior to diving directly into action, here are seven steps you’ll need to execute to get your idea funded:

  1. Forecast your financials – how much do you need, and what do you plan to do with it?
  2. Put together a pitch – start by reading this valuable piece on why pitch decks fail
  3. Develop a list of potential investors – who do you know?
  4. Schedule meetings, show up, and pitch your idea – this is the work
  5. Have a system for receiving proposals and responding – organization is key
  6. Navigate the (occasionally lengthy) due diligence process – keep your eyes on the prize
  7. Prepare and execute required documentation and accept funds – it’s go time!

How Funding Works

How Funding Works for Start-Ups: A Guide to Funding Rounds

Those seven steps almost make the entire funding process look easy, and maybe yours will be. We sure hope so. It’s worth preparing for it not to be, though. To be clear – and beyond those steps – startup funding only works if you have a good idea. You may be incredibly likable, have a well-polished pitch, and bring lots of energy to the table. Each of these is to your advantage. However, if you have a bad idea, no one is going to invest their money in your startup. Of course, there may be family and friends who want to see you succeed and are happy to push some dollars your way, but the money you need to actually get your business off the ground won’t materialize. 

Let’s start with the assumption that your idea is solid, though, because, of course, it is! You’re about to turn the market upside down and you’re going to have fun doing it – if you can get the funding you need, that is. Depending on how much money your startup requires, who (and how many people) you’ll need to work with will differ. In order to keep track of everyone, it’s helpful to categorize your potential investors into groups. The importance of maintaining some order here can’t be underemphasized. Knowing who you’ve talked to, where they are in the decision-making process, and what the next steps are will keep you from feeling like you’re flailing. The flailing founder is a bad look. That’s a promise. 

Organize Investors into Groups

Between your family, a couple of colleagues from the place you used to work, the friend-of-a-friend who mentioned investing that one time at a barbecue, and at least a dozen of the people you’re connected to on LinkedIn, it may be difficult to imagine any real groups at all. As your network expands, it’s worth thinking about organizing your potential investors like this:

Friends and Family

These are people you know personally or at least socially. Typically, they are some of your earliest investors, cheerleaders, and advocates. Eventually, they may not have invested the largest sums of money, but they championed your idea long before anyone else was clamoring for a chance to get on board. These are good people, and you’re lucky if you have a few of these. This group isn’t a guarantee. Remember that and don’t forget to thank them.

Angel Investors

As the name suggests, this is a special group with the ability to change the game for you and your startup. Angel investors are frequently accredited, which simply means they are someone whose:

  • Net worth either exceeds $1M (excluding the value of their home), or
  • Individual income exceeds $200,000 (consecutively for the last two years), or
  • Joint income (with a spouse) exceeds $300,000 (consecutively for the last two years)

Angel investors put their own money into startups in exchange for a percentage of ownership in the business or as convertible debt – that is debt that can be converted into common shares at a future date. 

Here’s a tip: Look for Angel investors who are local to your area and who also invest in your market or industry. Your odds of converting this prospect into an investor are much greater when both of those boxes are checked.

Venture Capital Firms

Unlike angel investors who are investing their own money, venture capitalists (or VCs) raise capital through private equity funds. With their own trusted network of investors, VCs build interest, excitement, and – hopefully – some capital on behalf of your startup. Like angel investors, venture capitalists exchange the funds they’ve raised for a piece of your company. 

Early Employees

While the first three groups probably made plenty of sense, including your earliest employees might leave you scratching your head. Here’s the deal, though: often, those initial hires are clocking in and out because they really like you or they believe in the idea. Maybe it’s both. It’s great when it’s both. Your startup has a lot going for it but the salary isn’t topping anyone’s list. In exchange for working for next to nothing, early hires will often accept shares of stock. In practical terms, these employees have more skin in the game than most. They’ve accepted a reduced wage and they’re working to help you build your business. That’s a solid investment.

Now, what about the “rounds” founders and investors are always talking about?

StartUp Funding Stages Happen in Rounds

Again, funding isn’t an overnight process. As your investor groups organize and grow, so too will your opportunities to raise capital. Of course, the needs of your growing startup will also change, as will the company’s appeal to potential investors. Here’s what you need to know about how startup funding works. 

Those seven steps almost make the entire funding process look easy, and maybe yours will be. We sure hope so. It’s worth preparing for it not to be, though. To be clear – and beyond those steps – startup funding only works if you have a good idea. You may be incredibly likable, have a well-polished pitch, and bring lots of energy to the table. Each of these is to your advantage. However, if you have a bad idea, no one is going to invest their money in your startup. Of course, there may be family and friends who want to see you succeed and are happy to push some dollars your way, but the money you need to actually get your business off the ground won’t materialize. Let’s start with the assumption that your idea is solid, though, because, of course, it is! You’re about to turn the market upside down and you’re going to have fun doing it – if you can get the funding you need, that is. Depending on how much money your startup requires, who (and how many people) you’ll need to work with will differ. In order to keep track of everyone, it’s helpful to categorize your potential investors into groups. The importance of maintaining some order here can’t be underemphasized. Knowing who you’ve talked to, where they are in the decision-making process, and what the next steps are will keep you from feeling like you’re flailing. The flailing founder is a bad look. That’s a promise. Organize Investors into Groups Between your family, a couple of colleagues from the place you used to work, the friend-of-a-friend who mentioned investing that one time at a barbecue, and at least a dozen of the people you’re connected to on LinkedIn, it may be difficult to imagine any real groups at all. As your network expands, it’s worth thinking about organizing your potential investors like this: Friends and Family These are people you know personally or at least socially. Typically, they are some of your earliest investors, cheerleaders, and advocates. Eventually, they may not have invested the largest sums of money, but they championed your idea long before anyone else was clamoring for a chance to get on board. These are good people, and you’re lucky if you have a few of these. This group isn’t a guarantee. Remember that and don’t forget to thank them. Angel Investors As the name suggests, this is a special group with the ability to change the game for you and your startup. Angel investors are frequently accredited, which simply means they are someone whose: Net worth either exceeds $1M (excluding the value of their home), or Individual income exceeds $200,000 (consecutively for the last two years), or Joint income (with a spouse) exceeds $300,000 (consecutively for the last two years) Angel investors put their own money into startups in exchange for a percentage of ownership in the business or as convertible debt – that is debt that can be converted into common shares at a future date. Here’s a tip: Look for Angel investors who are local to your area and who also invest in your market or industry. Your odds of converting this prospect into an investor are much greater when both of those boxes are checked. Venture Capitalists Unlike angel investors who are investing their own money, venture capitalists (or VCs) raise capital through private equity funds. With their own trusted network of investors, VCs build interest, excitement, and – hopefully – some capital on behalf of your startup. Like angel investors, venture capitalists exchange the funds they’ve raised for a piece of your company. Early Employees While the first three groups probably made plenty of sense, including your earliest employees might leave you scratching your head. Here’s the deal, though: often, those initial hires are clocking in and out because they really like you or they believe in the idea. Maybe it’s both. It’s great when it’s both. Your startup has a lot going for it but the salary isn’t topping anyone’s list. In exchange for working for next to nothing, early hires will often accept shares of stock. In practical terms, these employees have more skin in the game than most. They’ve accepted a reduced wage and they’re working to help you build your business. That’s a solid investment. Now, what about the “rounds” founders and investors are always talking about? Funding Happens in Rounds Again, funding isn’t an overnight process. As your investor groups organize and grow, so too will your opportunities to raise capital. Of course, the needs of your growing startup will also change, as will the company’s appeal to potential investors. Here’s what you need to know about funding rounds.

Pre-seed Funding Stage

If you’re nervous about beginning the funding process, here’s some good news: you may have already experienced your first round without even fully realizing it! Pre-seed funding typically happens when a founder (or a group of co-founders) injects their own money in an effort to get the company off the ground. Family and friends who simply want to see you succeed – that is, who aren’t investing in a strict sense – may also be included in pre-seed funding.

Seed Funding

If the pre-seed funding stage felt less than official, the seed funding series is where that changes. In this round, the focus is on growth, because that’s what seeds do. Potential investors are able to look at your business like a seed and ask themselves a few pertinent questions. For example:

  • How much potential does this business have to grow? (TAM = Total Available Market) 
  • Are the conditions right for success? Is there Product:Market fit? Is there revenue traction? 
  • Is money the only thing preventing growth or expansion? How strong is the team?

Thinking back to the groups of investors you’re working with, several of them will be drawn to this round. While friends and family may certainly take this opportunity to invest officially, venture capital firms and incubators will too. Seed funding is also a chance for an angel investor to enter the picture since they often appreciate the risk/reward ratio of a brand new venture. 

Know What You Need (and Who is in Your Network)

While it’s impossible to project what a seed funding round might look like for cash in the bank for your startup, much of your success in this round will come down to need and network. Normally a good seed funding round can produce anything from five to seven figures. If your funding needs are relatively small and you have a broad network of potential investors to work with, it’s possible that your startup will receive all of the funding it needs to launch and be sustained. On the other hand, if you know you need several hundred thousand dollars or more, it’s possible that other rounds of funding will be necessary. This isn’t unusual. Here’s what you need to know. 

Series A Funding

Ideally, between pre-seed and seed funding, you were at least able to get your startup off the ground. All of your funding issues aren’t solved yet, but the wheels are turning. Yes, of course, it may have been nice to raise all the startup funds and capital you needed early on, but that’s not what happened – which could be to your advantage. You have a tremendous opportunity to focus on key performance indicators – from developing a customer or client base to maintaining consistent revenue numbers.

Creating this kind of track record sets your startup apart. It’s an opportunity to demonstrate that your business is more than just a good idea. At this point, you have something tangible – some proof. As with each funding round, a key (or “anchor”) investor can often generate interest among other investors once they sign on. If venture capital firms were slow to invest during the seed funding round, know that they will be paying attention this time. Angel investors may still look for an opportunity, however, with the kind of capital that is often raised in a Series A round, private equity crowdfunding has the opportunity to create a significant impact. 

Series B Funding

For startups that are past the development phase, Series B funding has the potential to elevate your business or brand to the next level. Much of the basis for Series B funding comes from unmet demand. In short, your startup may grow quickly – faster than even you can imagine. Sustained growth presents an opportunity for later-stage investing, because production or warehouse space, talent acquisition, expanded technology to boost supply takes an infusion of cash. 

Companies that fall into the Series B category are well-established. Their valuations range from $30 to $60 million. As with Series A, a key investor – someone with their own track record of investing wisely – can be helpful to get the ball rolling, and you can expect even larger VC groups to get involved before the chance is gone.

Series C Funding

Businesses that navigate their way from seed funding rounds to Series C funding all have one thing in common: they are really successful. At this point, additional funding isn’t about making payroll or staying afloat, but rather things like new product development, market expansion (nationally or internationally), and/or competitor acquisitions or mergers. These are all questions of scale, and for businesses ready for Series C funding, scaling as quickly as possible is the goal.

While additional funding rounds (including Series D and E) do exist, the businesses that qualify are no longer startups in any realistic sense of the word. While a company may utilize Series D or E to pursue unmet goals in earlier rounds, that isn’t the only purpose. The kind of funding that is raised in rounds like these – typically in the hundreds of millions of dollars – is put in place for global expansion, market takeovers, or a final valuation boost before an initial public offering (IPO). 

Okay…Understood, but What About…?

Organizing your potential investors into groups and understanding when and why they may be interested in making a move is important – but those aren’t your only questions, are they? We didn’t think so. At The Main Stage, we work day in and day out with founders just like you. Not surprisingly, many of you share the same questions and concerns. As you might imagine, quite a few of these questions have to do with funding. We’re going to tackle a few of the most common here. Let’s go!

“How do startup companies receive funding?”

You may not believe just how frequently we hear this question, and typically it’s asked almost apologetically. Cut yourself some slack, founder. If this is your first startup or even the first one you’ve gotten this far into the funding process, the process is brand new. There are no bad questions. Here’s what you need to know:

Rounds of funding through investors, as we’ve described above, are one of the ways startup companies receive capital, but they aren’t the only ways. Here, in no particular order, are a few others you should at least be aware of:

Self-Funding (or, “What’s in Your Wallet?”)

Self-funding is often referred to as bootstrapping because, well, you’re effectively pulling yourself – by way of your startup – up by your own bootstraps. Whether you have savings or the ability to liquidate some assets, self-funding isn’t without at least two key advantages: 

  1. Using your own money allows you to retain full ownership of your business
  2. You can avoid paying interest

Borrowing Money

Interest, of course, can become an issue when you borrow money. Frequently, startup founders apply for loans through some combination of traditional banks, the U.S. Small Business Administration (SBA), and online lenders. Unlike the groups of investors we helped you break down earlier, these lenders won’t be interested in ownership stakes, but they will expect the loan – with interest – to be repaid. 

NOTE: One particularly helpful program is the SBA microloan. Designed specifically with startups in mind, the microloan has term lengths as high as seven years, relatively low fees, interest rates that tend to range from 6% to 9%, and low amounts up to $50,000. If pre-seed of seed rounds were uninspiring, if you need a smaller amount to launch your startup, or if ownership (especially early on) is important to you, one of these programs might be advantageous. 

“How do investors get paid back?”

It’s a common concern and one that’s kept many founders awake at night. Exactly how do investors make their money back? Here’s a hard truth: Sometimes they don’t. We need to address that upfront before we go any further. Despite all the work, each and every hope or dream, and even thousands – or hundreds of thousands – of dollars, sometimes an investment fails. Startups stop. People try again. It happens. Reward almost always includes some degree of risk. The more risk, the higher the reward. 

Now that the hard part is out of the way, let’s focus on the reward. Let’s imagine that one or more round of funding was sufficient and you have made the most out of the capital invested. Bravo! Here’s some more good news: Those investors were not lenders. Whether you had an angel investor, a few venture capitalists,  or a group or family, friends, and colleagues (or some combination), they didn’t invest their money in exchange for repayment with interest. These were not loans. They were investments into your company in exchange for a share of ownership – typically in the form of stocks or shares. As your startup grows into a full-fledged business, these shares continue to grow in value. These shares can payout significantly when there’s an exit – that is when your company is sold to or acquired by a larger competitor. 

“How long does it take to get funding for a startup?”

Once you’ve made a decision to launch your startup and pursue some form of funding, the days, weeks, and months that follow can often feel like a race against the clock. Other times it may seem like that clock is standing still. Like any good founder, you’re eager for there to be money in the bank because that will allow you to make more products, hire more employees, or invest in better technology. 

Much of the timeline, for good or bad, will come down to you – the founder. If you’re a relatively unknown quantity – as most startup founders are – funding may take a little longer than it would for someone who’s had some previous successes (e.g. businesses that launched, grew, and were acquired). We’re talking months, not weeks. Possibly longer. Likewise, if you initially have a small network of investors, it might be harder to get the funding ball rolling. Again, this underscores the importance of the organization we mentioned at the beginning. Know who’s in your network, build those relationships so that you can connect to their networks, and watch your business grow. 

On average, the fundraising rounds we broke down earlier take place every 12 to 18 months, however, a good seed round can potentially replace the need to raise any more capital. The time spent between rounds is often reserved for the due diligence process.

The Bottom Line

For founders who just want to go to work building their dream or putting their idea into motion, fundraising can feel unnatural, overwhelming, and even confusing. No one understands that better than we do. At the Main Stage, each member of our team has walked the journey you’re now on. We’re investors, start-up founders, and, well, real people who know the ups and the downs of forecasting, pitching, building a network of investors, and finally – thankfully – seeing that hard work pay off.

That’s good news for one reason in particular: It means we can help you. Whether you’re:

  • creating the perfect pitch on our Story Vault™ platform;
  • organizing and managing those investor relationships in our proprietary CRM system;
  • or closing the deal and putting cash in the bank with our industry-compliant Data Vault;

The Main Stage is how and where fundraising happens. Are you ready to get started? So are we. Click here for a chance to learn more and sign up for a free 14-day trial. 

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Aishlin Harrison is the co-founder of The Main Stage, as well as an artist, musician, and passionate entrepreneur. In addition to these roles, she serves as Creative Advisor for RedCrow™, Inc., a direct investment and marketing platform for healthcare companies. You can connect with her on LinkedIn